Aishwarya Rai was born in Mangalore, in the South Indian state of Karnataka, to Krishnaraj Rai, a marine engineer, and Vrinda Rai, a writer. Her family later relocated to Mumbai. Rai has one brother, Aditya Rai, who is three years older than she is. Aditya is a film producer, and has occasionally produced films in which Rai acted. Aditya got married in early 2004

Rai attended the Arya Vidya Mandir at Santacruz, Mumbai, then entered Ruparel College, Matunga, Mumbai. She was an A student and was on track to become an architect. Rai's native language is Tulu; she also speaks English, Hindi, Urdu, Marathi, Tamil, and Kannada.

Rai began modeling on the side while studying architecture. In the 1994 Miss India contest, she placed second behind Sushmita Sen, and went on to win the Miss World title that same year and the Miss Photogenic award. After the one year reign as Miss world in London, she then worked as a professional model, in advertising and Indian fashion magazines.

The first film Rai acted in was a Tamil movie Iruvar in (1997), directed by Mani Ratnam. Her first Hindi film was Aur Pyar Ho Gaya opposite Bobby Deol. Her breakthrough performance came in 1999 with Sanjay Leela Bhansali's film Hum Dil De Chuke Sanam. Later standout successes include Taal and Devdas. Besides Hindi language, Bollywood films, Rai has also acted in Tamil films such as Jeans and Kandukondain Kandukondain and the Bengali film Chokher Bali, and appeared in a Telugu film Ravoyi Chandamama. Since 2004 Rai has also been appearing in an increasing number of English language films.

In 2002, Rai appeared with Bollywood superstars Shah Rukh Khan and Madhuri Dixit in the lavishly produced Devdas, which was a huge hit. The film attracted overseas attention as well, receiving a special screening at the Cannes Film Festival and being nominated for an Academy Award for Best Foreign Film in the United States, garnering international attention for Rai.

In 2003, Rai was a member of the jury at Cannes. In 2004, she was chosen by TIME Magazine's Asian Edition as one of Asia's "100 Most Influential People." She was the subject of a 60 Minutes profile on January 2, 2005 - "The Most Beautiful face in the Bollywood." A month later she appeared on the Late Show with David Letterman, and on April 25, 2005, she was featured on Oprah's "Women Across the Globe" segment. A wax figure of Rai is on display in London's Madame Tussaud's wax museum. Julia Roberts named Rai the most beautiful woman in the world.

Although frequently the subject of gossip column speculation about an imminent Hollywood career, it was only in 2004 that Rai finally acted in a foreign film, when British director Gurinder Chadha hired her to play the heroine in Bride and Prejudice, a Hollywood-funded but Bollywood-ized version of Jane Austen's classic novel, Pride and Prejudice. The movie came just shy of breaking even at the US box office but earned over 400% return on investment in global revenue. Her later movie Mistress of Spices, written by Gurinder Chadha and her husband Paul Mayeda Berges from the novel by Chitra Banerjee Divakaruni and directed by Berges, was released in the U.K. in April 2006 to a generally poor critical and commercial reception. Aishwarya has several other international, English-language films in the pipeline, including Provoked, The Last Legion, Singularity, and Chaos.

The song "Kajra Re", which Rai performed in the film Bunty Aur Babli, was voted best song of 2005 and best choreographed song of 2005 in a poll by the Hindustan Times. Rai appeared at the Closing Ceremony of the 2006 Commonwealth Games in Melbourne, as part of a performance showcasing Indian culture, on behalf of the 2010 Commonwealth Games, to be held in New Delhi. For her three-minute dance performance, Rai was reportedly paid three crore rupees, the equivalent of about 600,000 U.S. dollars.

Rai began dating Salman Khan, her co-star from Hum Dil De Chuke Sanam, after the filming of that movie. Their breakup a few years later generated a substantial amount of press attention; a police report from Rai's parents turned up alleging that Khan had smashed windows and furniture at their home, and an inebriated Khan subsequently assaulted Rai on the set of a movie she was working on, soon before he was arrested for drunk driving and vehicular homicide. Years later, at the premiere of her film Provoked, in which she plays the role of a real-life victim of domestic violence, Rai reported having personally suffered from domestic violence, a reference that was linked by the press with her past relationship with Khan. Rai later had a brief relationship with Abhishek Bachchan begun during the filming of Umrao Jaan, with whom she had previously co-starred in Kuch Naa Kaho. She was reported to have broken up with Bachchan in April 2006, while the two are currently filming yet another collaboration, Dhoom 2.

Rai has been described by others in the Bollywood film industry as having traditional values and being "a paragon of age-old, dutiful Indian femininity". As a practicing Hindu, she has described herself as having "immense faith in God", and when at home she attends the Siddhivinayak Mandir, devoted to Lord Ganesh. When not on the road, Rai lives in Mumbai with her parents.